Athens tested with alert on Greek post-rescue conditions

The euro area signaled that Greece must stay on a tight economic leash after any early exit from its rescue program, highlighting political risks for Greek Prime Minister Antonis Samaras as he seeks to avoid a snap election.

Greece will probably need a precautionary credit line underpinned by “enhanced” policy conditions as of January, Dutch Finance Minister Jeroen Dijsselbloem told reporters late on Thursday in Brussels after chairing a meeting with his euro-area counterparts.

He also said the International Monetary Fund, co-financer of Greece’s 240 billion-euro ($297 billion) rescue along with the euro area, should have a role in the future Greek program. Follow-up support would be financed by the European Stability Mechanism, or ESM, the euro area’s permanent rescue fund.

“Taking into account the still-fragile market sentiment and the many reform challenges still lying ahead, there is strong support for a precautionary credit line in a form of an existing ESM tool called the ECCL, an Enhanced-Conditions Credit Line,” Dijsselbloem said. “There’s also a broad understanding that the IMF needs to continue being involved.”

With the European portion of Greece’s rescue due to end this year, Samaras wants to forgo emergency IMF loans next year and in 2016 to ease international oversight of Greece’s fiscal policies. The lifeline offered to Greece by the euro area and IMF since 2010 has been in exchange for unpopular budget cuts that deepened a six-year recession.

New President

Throwing off the shackles of the aid program could bolster Samaras’s goal of avoiding an early election that polls indicate would be won by the main opposition Syriza party. The popularity of Samaras, head of the New Democracy party that governs in a coalition with the Socialist Pasok, has suffered as Syriza leader Alexis Tsipras lashed out at the belt-tightening conditions of the bailout.

Samaras has until February to pull together a supermajority in the national parliament to pick a new Greek president or Syriza will force a snap election. Greece’s next general election isn’t due until 2016. An early ballot would return Greek voters to their 2012 dilemma when the country’s membership of the euro bloc hung by a thread, Greek Minister of Administrative Reform Kyriakos Mitsotakis said last week.

Public Finances

Emboldened by improved public finances and a return to bond markets this year, the Greek government wants to join Ireland, Spain and Portugal in emerging from aid programs and to leave Cyprus as the last bailout victim. The size of the Greek rescue — around half of all the bailout funds committed for the five countries — and persistent difficulties in getting authorities in Athens to comply with the terms have made the euro area and the IMF wary of cutting Greece loose.

Their skepticism is shared by bond investors, who last month dumped Greek debt after Samaras said he was “fully comfortable” seeking to go it alone at year-end and some euro-area finance ministers questioned the wisdom of such a step. After a three-day selloff in Greek bonds that sparked some contagion in peripheral European debt markets and reawakened fears of the early days of the European financial crisis, Samaras announced on October 17 that his government was in talks on a precautionary credit line.

IMF Role

Thursday’s meeting of euro-area finance ministers marked their first exchange of views about Greece’s intention to leave its rescue program more than a year ahead of schedule. Greece would be the first euro-area country to have an ESM precautionary credit line after exiting its bailout.

Dijsselbloem declined to speculate about the IMF’s future role, a sensitive issue in Greece because of the extent to which Greeks associate the Washington-based lender with budget austerity.

“Further discussion will have to take place on the exact form of this involvement,” Dijsselbloem said. “I cannot go into more detail.”

European Union Economic and Monetary Affairs Commissioner Pierre Moscovici said that, in any case, Greece’s post-2014 arrangements with creditors would entail less-intrusive monitoring by them.

“Everyone feels that we should cease to micromanage the situation in Greece,” Moscovici told reporters. “Greeks have the impression that we’re holding their hand, that we’re dealing with all sorts of details.”

Credit Line

Before any accord on a precautionary credit line for the country, the Greek government must successfully wrap up the current European-IMF review of progress in meeting the existing rescue conditions, said Dijsselbloem. At stake are about 7 billion euros in aid payouts still due this year.

“It is crucial that the current review is concluded,” Dijsselbloem said. “More remains to be done.”

European and IMF budget inspectors intend to return to Athens later this month to continue their review. Moscovici said they should travel there before the end of next week so that euro-area finance ministers are in a position to decide on the next aid payouts to Greece and the planned end of the country’s program at a December 8 meeting in Brussels.

Greek Finance Minister Gikas Hardouvelis declined to comment on the details of the discussions with his euro-area counterparts, saying only: “I consider that we made progress.”


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